All Cases For OPERATIONS MANAGEMENT IN THE SUPPLY CHAIN DECISIONS & CASES, 8th Edition 1. Altimus Brands Managing Procurement Risk TEACHING NOTE - 8e 2. Amazon Revolutioizes Supply Chain Management Teaching Note - 8e 3. Best Homes - Forecasting TEACHING NOTE 8e 4. best homes exhibit in columns CALCULATIONS with graphs 5. Consolidated Electric - Inventory Control TEACHING NOTE 8e 6. Early Supplier Integration for John Deere Skid-Steer Loader - 8e 7. Eastern Gear_TEACHING NOTE -8e 8. Lawn King - Sales and Operations Planning TEACHING NOTE 8e 9. Mayo Clinic and the Path of QualityTEACHING NOTE 8e 10. Murphy Warehouse Company Sustainable logistics_TEACHING NOTE - 8e 11. Operations Strategy at BYD OF CHINA case teaching note - 8e 12. Polaris Industries - Global Plant Location Teaching Note 8e 13. SAGE HILL INN ABOVE ONION CREEK teaching note -8e 14. ShelterBox A Decade of Distaster Relief Teaching Note - 8e 15. Southern Toro Distributor TEACHING NOTE 8e 16. The Evolution of Lean Six Sigma at 3M_TEACHING NOTE 8e 17. The Westerville Physician Practice - TEACHING NOTE 8e 18. Toledo Custom Manufacturing - Quality Control teaching note -8e 19. ToysPlus Inc. MRP TEACHING NOTE 8e 20. US Stroller - Lean_TEACHING NOTE -8e
1. Altimus Brands: Managing Procurement Risk Teaching Note Synopsis and Purpose Altimus Brands is a leading retailer of quality footwear. It sells its products in 120 countries and in 2010 had £1.3 billion in sales. Altimus Brands sells 7 different types of premium footwear. Altimus does not manufacture its own footwear. It sources products from various sources in Asia. But, this requires close attention to not only costs, but also quality and on time delivery. The market for premium footwear is primarily in the U.S. and Europe. However, the sourcing of the footwear comes mainly from China, Brazil, Vietnam, Thailand, Indonesia, India and Bangladesh. Corporate social responsibility and in particular ethical issues such as child labor and sweat shops is important to the company. Companies with major brands such as Adidas, Gap and Nike find themselves a subject of major scandals which Altimus wants to avoid. The Global
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Compact, promoted by the U.N. and Ethical Trading initiative (ETI) was launched to promote responsible trading practices. Altimus acts as a supply chain integrator. They do not manufacture the products they sell, but rather arrange for the sourcing and logistics needed to bring the products to their 230 retail stores worldwide and other channels that sell their products. Altimus coordinates logistics through a third-party logistics (3PL) provider. At a meeting on sales for next year, Enzo (head of Operations and Finance) focused on sales of their top brand of RockyMountain footwear. Based on experience, the demand for next year is expected to be between 375 and 425 thousand pairs per month. Supplier selection focused on four suppliers, three of them were used last year and one supplier was new. Yu Ven had a factory located in Vietnam which has been supplying Altimus with about 53% of the RockyMountain brand. Jai Nin, in China, has been supplying them for ten years and provided 32% of their requirements. Far Byung in Indonesia, has been supplying almost 16% of their product for only the past three years. Footnow is a potential new supplier located in Bangladesh, and although the prices are lower than the current suppliers the risk is much higher on quality, on-time delivery and other factors. The criteria for evaluating suppliers depends on quantitative factors such as cost, inflation rates, duties and capacity. However qualitative risks were more difficult to quantify and Altimus decided to use a simple qualitative rating to indicate if a risk was low, medium or high. The results are shown in Exhibit 2 of the case. Enzo was concerned that the supply base could suffer if not managed correctly. While lower costs were attractive, the risks could not be ignored, especially for a new supplier. Also, he was aware that the CEO was especially concerned about ethics and the negative, even disastrous, effect, it could have on their outstanding brand and ultimately sales. Enzo knew a recommendation was due at the board meeting at the end of the month. Reducing costs is a major concern, but how could this be done without exposing the company to supply chain disruption and risks. Discussion Questions. 1. Why is this company a supply chain integrator rather than a manufacturer? What are the resulting advantages and disadvantages? 2. Evaluate the costs and risks of the four suppliers. Do this subjectively and also develop a weighted scoring model to evaluate costs and risks. 3. Which supplier(s) do you recommend to meet their demand requirements and why? What amount should each supplier produce? 4. How should the suppliers be monitored during the year regarding ethics, quality, on time delivery and other criteria. 2
Analysis 1. Altimus Brands is a quality and premium shoe company. Therefore, they do not compete on the lowest possible cost or prices. Nevertheless, cost is important to them in order to improve profits, but they can price higher for premium shoes. The advantage of being a supply chain integrator is that they can search for the lowest cost suppliers. The cost of production is changing over time and moving from one country to another. However, if they had a manufacturing plant in Asia, they would not be able shift from one country to another. On the other hand, manufacturing in Asia could take out significant costs and profits of current suppliers. 2. The total cost per pair in $ is given in Exhibit 2. This cost is Ex-Factory Price which is the price at the factory without duties or anti-dumping duties applied. Thus we must increase the Ex-Factory price by these duties. We also do not have transportation costs, contract administration costs, port charges and other costs, but we can assume they would all be approximately the same for the four suppliers. Adding the duties + Anti-dumping % to the Ex-Factory price results in the following costs.
Ex-Factory price Duty + Antidumping % Ex-Factory price + Duties and Anti-Dumping
YuVen 17.00 18%
Jai Nin 25.00 24.5%
Far Byung 16.50 4.5%
Footnow 15.40 0%
$20.06
$31.13
$17.24
$15.40
The risks across the four suppliers are mostly low except for Footnow which are medium to high for all risks. This is to be expected since Footnow is the only new supplier they are considering in a new country, Bangladesh. Far Byung does, however, have two med risks due to country risk and development capability risk. A weighted scoring model is shown below. The weights assigned to risks are equal since we have no basis to decide whether one risk is more important than another. Also we assume that Ex-Factory price + duties receives 50% of the total weight, with 10% assigned to each of the remaining five risks. The scoring is assumed to be 1 for low risk, 3 for med risk and 5 for high risk. The costs are normalized by the same scale with 1 being the lowest cost and other costs being scaled to the interval 1 to 5.
Ex-Factory price + duties Delivery on time Communication Country risk
Weighting 50% 10% 10% 10%
YuVen 20.06 (2.18) [1.09] .1 .1 .1
Jai Nin 31.13 (5) [2.5] .1 .1 .1 3
Far Byung 17.24 (1.47) [0.73] .1 .1 .3
Footnow 15.40 (1) [.5] .3 .3 .3
Product Quality 10% Development 10% Capability TOTAL SCORE 100%
.1 .1
.1 .1
.1 .3
.3 .5
1.59
3.0
1.63
2.2
Note: the lowest cost (15.40) is set equal to 1 and the highest cost (31.13) is set equal to 5. Then the cost 17.24 is converted to the 1 to 5 scale proportionally as 1.47. Likewise, the cost 20.06 is converted proportionally to 2.18. After these conversions, the cost ratings on the 15 scale are multiplied by .50 to accommodate the 50% weighting for costs, [1.09], [2.5], [.73] and [.5]. These costs are added to the risk factors to get the TOTAL SCORE for each supplier. 3. The weighted scoring model shows that YuVen is the best (lowest cost and risks) followed closely by Far Byung and then Footnow with Jai Nin the highest score. As a result of this and the qualitative discussion, the largest orders should be given to Yu Ven and Far Byung. The Jai Nin order should be cut back substantially and the difference given to the three other suppliers. The forecast is for 375,000 to 425,000 pairs per month, say 400,000 for planning purposes.
Last Year % Next year using Last yr. percentage of 400,000 Next year adjusted order amount -- conservative Next year adjusted order amount -- more risk
Yu Ven 52% 208,000
Jai Nin 32% 128,000
Far Byung 16% 64,000
Footnow 0% 0
228,000
64,000
83,000
25,000
247,000
0
103,000
50,000
The result “Next year using percentage of 400,000” takes last year‟s percentages multiplied by 400,000 per month to determine what would be ordered if nothing changed. Since Footnow has much higher risks, and a higher weighted score, it might be prudent to give them an order for 25,000 pairs in the first year, say half of their capacity. Also, the 128,000 supplied by Jai Nin could be cut back to 64,000 and then 64,000 -25,000 given to the other two suppliers. This could be thought of as a two year program to cut Jai Nin to zero and ramp up Footnow to 50,000 provided the risks at Footnow are lowered with more familiarity the following year. To obtain “Next year adjusted amount to order,” we assume that 25,000 units would be ordered from the new supplier Footnow. Since JaiNin is very expensive and has a low rating score, we only order half of the 128,000 order they could receive next year or 64,000 units. The remaining 64,000 – 25,000 units = 39,000 units are divided between YuVen and Far Byung. This is a conservative approach to balancing risk and cost. It can amount to a twoyear phase in of Footnow and a two-year phase out of Jai Nin.
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The riskiest approach would be to phase Footnow in at the full 50,000 units and phase out Jai Nin to zero units next year. In this case divide the remaining units between Yu Ven and Far Byung. Students with answers anywhere between the conservative approach and the risky approach could be considered correct or appropriate, depending on how much risk a student is willing to take. There are also many other approaches that could be argued. Inflation might not be important since we are adjusting the amounts ordered over a one or two year period. However, Yu Ven has 25% inflation and Far Byung has only 11% inflation. This could be considered in making the split between Yu Ven and Far Byung something less than 50-50 with more going to Far Byung and less to Yu Ven. With Zero % inflation at Footnow, we might be tempted to take a bit more risk to get closer to 50,000 units in the first year. We might also investigate if Footnow is willing to increase capacity after the first year, assuming the relationship is successful and risk is lowered. Perhaps, working toward a threeway even split between Yu Ven, Far Byung and Footnow could be considered.
4. Once the order amounts have been decided, attention should turn to monitoring the four suppliers. For example, Footnow should be monitored very closely for all risks. This can be done by sending a team of specialists to Bangladesh to inspect the product as it is being produced. When production is first started, the team should inspect samples of the product before it is shipped. Also, the team should work toward having Footnow ISO 9000 certified. Once the team is confident that Footnow is on the right path to lower risks, inspections can be planned on a periodic basis during the year. With respect to the other three suppliers the inspection team can continue with whatever monitoring program they already have in effect, since it seems to be working quite well.
Amazon Revolutionizes Supply Chain Management Teaching Note
Case Summary Amazon has revolutionized supply chains in the past thirty-five years, since its inception. It developed an online e-commerce site that provides convenience for customers when shopping for retail items. Not only can customers order products, they can use the site to evaluate alternatives and find what they want to buy. Once the order is placed, Amazon has built an extensive logistics network of 140 DCs to stock and deliver products rapidly. Prime membership was introduced in 2004 for an annual fee of $99 that guaranteed two-day delivery of all orders. This exploded Amazon‟s sales from $7 billion in 2014 to $177 billion in 2017. In 2017 Amazon acquired 470 Whole Food stores located throughout the U.S. This launched Amazon squarely in the grocery business with brick-and-motor stores along with online potential through the Amazon site. Customers were able to order groceries online at Whole Foods and have them delivered within a few hours using their Prime membership or they could 5